Retirement Planning

Managing Your Retirement Funds

The secret to a happy retirement? There are probably many. However, not having to worry if you'll run out of money is certainly near the top of the list.

The problem is, people are living longer today. It is not unusual for people to live well into their late 80s. That is a good thing, except when it comes to retirement savings. Living longer means you'll need far more dollars for your retirement years.

The secret to stretching those dollars is proper management of the money you've saved for retirement. The wiser the financial choices you make, the more likely it is that you will not run out of money during your retirement years.

The good news? Managing your retirement funds does not have to be complicated. You can either hire a financial advisor to take on this role or you can do it yourself.

Going with a pro

There are plenty of financial planners who can help you manage your retirement funds. These financial pros can provide you with suggestions on how much money you should withdraw from your savings each year. They can also provide guidance on which investments you should first make your withdrawals from.

A financial planner can also spot signs of trouble with your investment portfolio. For instance, you might have a portfolio that's weighted too heavily toward risky stocks. Alternatively, you might have one that doesn't have enough risk. Both can cost you a significant amount of dollars during your retirement years.

A portfolio weighted too much towards stocks could eat away your savings should those stocks falter. A portfolio that relies too heavily on safer bonds could shut you out of the potentially bigger gains that stocks can generate.

The key to having someone else manage your retirement funds is to find the right professional for the job. This means that you'll have to interview several financial planners or advisors before selecting one to watch over your funds.

First, make sure to work with a Certified Financial Planner. Such planners must take regular continuing education courses to maintain their certifications. This means that they are more informed about the latest investment trends, strategies and vehicles.

Secondly, only work with a financial planner who is willing to provide you with references of current customers. You want to consult with these references to make sure that they have been satisfied with a particular planner's advice, service and responsiveness.

Finally, make sure that you only work with a financial planner with whom you are comfortable. You will be sharing personal financial information with this professional. You want to be able to trust them. Ideally, you should like them, too. Work with a planner who listens to you, takes your individual needs into account and gives you a say in investment decisions. There should be no "one-size-fits-all" advice.

Going it alone

You also have the choice of going it alone when it comes to managing your retirement funds.

If you choose this route, you'll need to commit to staying up-to-date on the latest financial news and be willing to conduct regular reviews of your investment portfolio.

That latter point is important: Too many retirees who manage their retirement funds review their investment portfolio on a frequent basis. This is a mistake. As you age, your investment needs change. It may make sense to have more risk in your portfolio in the early years of your retirement, especially if you expect to live many years after leaving the workforce. However, as age, you might need to reduce some of that risk.

If you do not review your investment portfolio and make the necessary changes, on a regular basis, you could end up costing yourself financially in the latter years of your retirement.

Many retirees who manage their retirement portfolio rely on the bucket approach. Under this method, you divvy your investments into several buckets. Those buckets with the least amount of risk, investments that typically include certificates of deposit, money market accounts and short-term annuities, are the ones designed to fund the first five years of your retirement.

The bucket of investments that funds your sixth through 10th years of retirement includes investments with a bit more risk, such as longer-term certificates of deposits and short-term treasury notes. The risk gradually increases with the buckets designed for years 11 through 15, 15 through 20 and 21 and beyond.

The key, though, is to move your savings from those riskier buckets to the safer buckets as you move through retirement. For instance, in year six of your retirement, the money you previously had in bucket two, with a bit more risk, goes down to bucket 1. You then start withdrawing from this bucket until you move into your 11th year of retirement. At this point, you move your investments down another level of buckets.

Please note, information and interactive calculators are made available to you as self-help tools for your independent use and are intended for illustrative purposes only. We cannot and do not guarantee their applicability or accuracy in regards to your individual circumstances. All examples are hypothetical and are for illustrative purposes. We encourage you to seek personalized advice from qualified professionals regarding all personal finance issues.

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